Improving Cash Flow – How Direct Debit Can Help

How direct debit can be used as a tool to help businesses improve their cashflow and ultimately their sustainability

Improving Cash Flow – How Direct Debit Can Help

Cash flow has always been recognised as one of the essential ingredients for most businesses to run smoothly. The ability to efficiently manage income and expenditure can impact on a company’s strategic direction and capability to grow.

IN Q4 2012 I asked Clive Lewis, Head of Enterprise for the Institute of Chartered Accountants in England and Wales, what are the best tools a business can use to improve cash flow? Clive says:

“Constant monitoring of cash flow, including doing a cash flow forecast and regularly updating it is important. If you give credit to customers, constantly monitor your aged debtor analysis and write down conversations with customers regarding payment. This way, if they do not do what they said they would you are able to chase them up. Be prepared to go higher up the customer’s management if their debt goes beyond the agreed terms and have a policy regarding when to start the process of taking legal action. Credit check customers if the monthly turnover is significant to your business and a bad debt would seriously affect your profits. Take advantage of automated collections tools such as Direct Debit to have a clear idea of cash flow from month to month”

It’s fair to say that cash flow sits high in a business’s priorities regardless of what they do. With this in mind I’d like to explore how businesses can use Direct Debit as a collection tool to help improve cash flow.

How to use Direct Debit as a tool to improve cashflow

Direct Debit is a trusted, secure and convenient method of payment for both the payer and beneficiary. Almost everyone will be familiar with direct debit as they will no doubt have one or more set up to pay commercial or personal bills e.g. utilities, telecommunications.

Considering the familiarity and convenience of direct debit, it is an excellent payment option to offer payers regardless of the services or products a business or organisation offers.

Direct Debit denotes the only collection method that pulls rather than pushes either variable or fixed payments putting the control in the hands of the beneficiary, unlike other payment methods including standing order which does not support variable payments and relies on the payer to set up with their own bank.

Direct Debit is proven to reduce debtor days, improve cash flow, improve customer’s loyalty and streamline administration. It can be used to collect any form of recurring payment from regular instalments to membership fees to hosting fees and plenty more.

Accessing the collection method as a small business

Many businesses are unable to obtain the required sponsorship in to the Bacs scheme via their bank to start collecting by direct debit. But even if a business can obtain its own sponsorship it is still faced with the challenge of adopting a processing platform to manage direct debit collections from day to day. Such a platform can be extremely costly and demanding on staff resources.

In consideration of this, whether a business can obtain sponsorship or not the most cost effective and administratively efficient means of collecting by direct debit is to utilise the services of a Bacs Approved Bureau.

A Bureau acts as a fully managed solution, enabling business or organisation to set up new payers and process on going transactions whilst providing comprehensive reporting and looking after all the security considerations associated with any financial transactions.

Most Bureaux will offer a facility to collect online, via paper or over the phone.

For more small business advice articles on cash flow management read 5 Steps to Improve Small Business Cash Flow and Finance for Non-financial Managers – Cashflow.


Simon Reynolds is the Marketing & Projects Manager at First Capital Cashflow.

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